Item 7. Management’s Discussion and Analysis
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are based on management’s current expectations, estimates and projections about our business operations. Read “Cautionary Statement Regarding Forward Looking Statements.” Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of numerous factors, including the known material factors set forth in Item 1A. “Risk Factors” of this annual report. You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements in Item 8 of this annual report.
This section of this annual report generally discusses key operating and financial data as of and for the years ended 2024 and 2023 and provides year-over-year comparisons for such periods. For a similar discussion and year-over-year comparisons to our 2022 results, refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 29, 2024.
Description of the Business
We provide hospitality services to remote workforces in Australia and Canada, including catering and food service, lodging, housekeeping and maintenance at accommodation facilities that we or our customers own. We provide services that support the day-to-day operations of these facilities, such as laundry, facility management and maintenance, water and wastewater treatment, power generation, communication systems, security and logistics. We also manage development activities for workforce accommodation facilities, including site selection, permitting, engineering and design and manufacturing and site construction management, along with providing hospitality services once the facility is constructed. We primarily operate in some of the world’s most active met coal, oil, liquefied natural gas (LNG) and iron ore producing regions, and our customers include mining companies, major and independent oil companies, engineering companies and mining service companies. We operate in two principal reportable business segments – Australia and Canada.
Basis of Presentation
Unless otherwise stated or the context otherwise indicates: (i) all references in these consolidated financial statements to “Civeo,” “us,” “our” or “we” refer to Civeo Corporation and its consolidated subsidiaries; and (ii) all references in this annual report to “dollars” or “$” are to United States (U.S.) dollars.
Overview and Macroeconomic Environment
Demand for our hospitality services is driven primarily by ongoing operations of existing natural resource projects in Australia and Canada. Historically, initial demand for our hospitality services has been driven by our customers’ capital spending programs related to the construction and development of natural resource projects and associated infrastructure. Long-term demand for our services has been driven by natural resource production, maintenance, operation and expansion of those facilities. In general, industry capital spending programs are based on the outlook for commodity prices, production costs, economic growth, perceived political risk, global commodity supply/demand, reserve replacement requirements, estimates of resource production, annual maintenance requirements and the expectations of our customers' shareholders. As a result, demand for our hospitality services is sensitive to expected commodity prices, principally related to met coal, oil, iron ore and LNG, and the resultant impact of these commodity price expectations on our customers’ spending. Other factors that can affect our business and financial results include the general global economic environment, including inflationary pressures, supply chain disruptions and labor shortages, volatility affecting the banking system and financial markets, availability of capital to the natural resource industry and regulatory changes in Canada, Australia and other markets, including governmental measures introduced to mitigate climate change.
Commodity Prices
There is continued uncertainty around commodity price levels, driven by many factors, including rising fears of a recession resulting from lingering inflation and higher interest rates, an economic slowdown in China and resultant economic stimulus by the Chinese government, the impact of inflationary pressures, actions taken by Organization of the Petroleum Exporting Countries Plus (OPEC+) to adjust oil production levels, geopolitical events such as the ongoing Russia/Ukraine and Middle East conflicts, U.S. oil production levels and regulatory implications on such prices. In particular, these items could
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cause our Canadian oil sands and pipeline customers to delay expansionary and maintenance spending and defer additional investments in their oil sands assets and in extreme cases reduce production.
Recent Commodity Prices
Recent met coal, iron ore, West Texas Intermediate (WTI) crude, and Western Canadian Select (WCS) crude pricing trends are as follows:
Average Price (1)
Quarter
ended Hard
Coking Coal
(Met Coal)
(per tonne) Iron
Ore
(per tonne) WTI
Crude
(per bbl) WCS
Crude
(per bbl)
First Quarter through February 21, 2025
$ 190.01 $ 97.82 $ 73.79 $ 59.71
12/31/2024 203.50 96.00 70.42 57.50
9/30/2024 210.74 94.54 75.29 59.97
6/30/2024 242.93 106.01 80.83 67.24
3/31/2024 307.68 118.54 77.01 59.48
12/31/2023 332.24 122.24 78.60 55.31
9/30/2023 260.12 111.04 82.50 66.20
6/30/2023 243.54 106.98 73.54 60.25
3/31/2023 341.08 117.08 75.96 56.61
12/31/2022 276.19 94.93 82.82 54.72
9/30/2022 252.63 99.21 91.63 70.70
6/30/2022 464.61 128.80 108.77 92.89
3/31/2022 474.83 129.46 95.17 82.04
(1) Source: Hard coking prices are from IHS Markit, iron ore prices and WCS crude prices are from Bloomberg and WTI crude prices are from U.S. Energy Information Administration.
Met Coal. In Australia, 84% of our rooms are located in the Bowen Basin of Queensland, Australia and primarily serve met coal mines in that region. Met coal pricing and production growth in the Bowen Basin region is predominantly influenced by the level of global steel production. Following negative growth from July through September 2024, production increased in the last quarter of 2024, reaching similar levels when compared to the same period in 2023. The turnaround in positive production growth in the last quarter of 2024 was driven by India’s steady steel production and a return to positive steel production growth in China. Global steel production during 2024 decreased by 0.9% compared with 2023. As of February 21, 2025, met coal spot prices were $188.50 per tonne. Steel demand is expected to increase marginally in 2025 compared to 2024 driven by continued improvements in demand from India.
Met coal prices stagnated around $200 per tonne during the last quarter of 2024, following a downward price correction in July and August 2004 as steel demand declined coupled with higher overall met coal inventories. Despite higher steel production from India and China in the last quarter of 2024, prices remained muted with high met coal inventories and steady supply in late 2024 and early 2025. In early 2025 met coal prices have dropped below $200, with prices averaging $190 in early 2025. High met coal inventories from buyers are impacting demand, however producers are maintaining strong production levels even at these lower prices.
While high met coal inventories continued to weigh on prices in late 2024 and early 2025, analysts are forecasting prices to trend higher during 2025 to average approximately $230 per tonne for the year. This will be contingent upon supply-side constraint from weather events and further anticipated Chinese stimulus support and stable demand from India.
Iron Ore. Iron ore prices fluctuated during the first quarter of 2024 and weakened through the second half of 2024, with prices range bound between $90 to $100 per tonne. Analysts expect iron ore prices to average $100 per tonne in 2025, with large producers forecasting steady supply and demand expected to remain muted.
WTI Crude. After reaching historic lows in early 2020 during the start of the COVID-19 pandemic, global oil prices increased to above $100 per barrel in the second quarter 2022. In the second half of 2022 and throughout 2023, oil prices generally declined due to (i) rising fears of a recession resulting from severe inflation and higher interest rates, (ii) resulting lower demand for oil and (iii) increasing U.S. oil production. In an effort to support the price of oil amidst demand concerns, OPEC+ countries extended their 2023 oil production cuts throughout 2024. These production cuts, coupled with the rising
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geopolitical risks in the Middle East, resulted in rising oil prices during the first half of 2024. Oil prices decreased during the second half of 2024 due to increased market concerns over economic growth and demand. OPEC+ is expected to increase production in 2025, likely putting pressure on global oil prices.
WCS Crude. In Canada, WCS crude is the benchmark price for our oil sands customers. Pricing for WCS is driven by several factors, including the underlying price for WTI crude, the availability of transportation infrastructure (consisting of pipelines and crude by railcar), refinery blending requirements and governmental regulation. Historically, WCS has traded at a discount to WTI, creating a “WCS Differential,” due to transportation costs and capacity restrictions to move Canadian heavy oil production to refineries, primarily along the U.S. Gulf Coast. The WCS Differential has varied depending on the extent of transportation capacity availability.
Certain expansionary oil pipeline projects have the potential to both drive incremental demand for mobile assets and to improve take-away capacity for Canadian oil sands producers over the longer term, most notably the Trans Mountain Pipeline expansion, which began operating in the second quarter of 2024.
WCS prices in the fourth quarter of 2024 averaged $57.50 per barrel compared to an average of $55.31 in the fourth quarter of 2023. The WCS Differential decreased from $19.35 per barrel at the end of the fourth quarter of 2023 to $13.49 at the end of the fourth quarter of 2024. As of February 21, 2025, the WTI price was $70.58 and the WCS price was $57.24, resulting in a WCS Differential of $13.34. Further, the Trump Administration has announced and is in the process of implementing a 10% tariff on energy resources imported to the U.S. from Canada. This tariff could widen the WCS differential and reduce Canadian oil producers' production and profits.
Other
Recent Developments . On February 18, 2025, we entered into a definitive asset purchase agreement with a private seller to acquire four villages with 1,340 rooms in Australia’s Bowen Basin and the associated long-term customer contracts. Under the terms of the agreement, Civeo would acquire the assets and customer contracts for total cash consideration of A$105 million, or approximately US$67 million, funded with cash on hand and borrowings from its existing revolving credit facility. The Proposed Acquisition is anticipated to close in the second quarter of 2025, subject to regulatory approvals and customary conditions.
Inflationary Pressures. During 2023 and 2024, inflationary pressures and supply chain disruptions have been, and continue to be, experienced worldwide. Price increases resulting from inflation and supply chain concerns have, and are expected to continue to have, a negative impact on our labor and food costs, as well as consumable costs such as fuel. We are managing inflation risk with negotiated service scope changes and contractual protections.
Labor Shortages. In addition to the macro inflationary impacts on labor costs noted above, we continue to be impacted by increased staff costs as a result of hospitality labor shortages in Australia due to significantly reduced migration in and around Australia affecting labor availability, which has subsequently led to an increased reliance on more expensive temporary labor resources.
LNG. Our Sitka Lodge supports the LNG Canada (LNGC) project and related pipeline projects (specifically, the Coastal GasLink Pipeline, the pipeline constructed to transport natural gas feedstock to LNGC). LNGC, a joint venture among Shell Canada Energy, an affiliate of Shell plc (40 percent), and affiliates of PETRONAS, through its wholly-owned entity, North Montney LNG Limited Partnership (25 percent), PetroChina (15 percent), Mitsubishi Corporation (15 percent) and Korea Gas Corporation (5 percent), is currently constructing a liquefaction and export facility in Kitimat, British Columbia (Kitimat LNG Facility). Construction activity of Phase 1 of the Kitimat LNG Facility is nearing completion, with commercial operations expected to begin in mid-2025. The Coastal GasLink Pipeline was completed in 2024 and entered commercial operations. The majority of our contracted commitments associated with the Coastal GasLink Pipeline were completed in the fourth quarter of 2023. As such, we expect continued lower occupancy at our Sitka Lodge in the near-term until subsequent phases of the LNGC project are approved and commence, or additional construction activity in the region, drive increased occupancy demand.
From a macroeconomic standpoint, LNG demand has continued to grow, reinforcing the need for the global LNG industry to expand access to natural gas. Evolving government energy policies around the world have amplified support for cleaner energy supply, creating more opportunities for natural gas and LNG. The conflicts between Russia/Ukraine and in the Middle East have further highlighted the need for secure natural gas supply globally, particularly in Europe. Accordingly, we expect additional investment in LNG supply will be needed to meet the resulting expected long-term LNG demand growth.
McClelland Lake Lodge. We did not renew our expiring land lease associated with our McClelland Lake Lodge in Alberta, Canada, which expired in June 2023, in order to support our customer’s intent to mine the land where the lodge was located. In addition, the accompanying hospitality services contract at McClelland Lake Lodge expired in July 2023; however,
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we continued to provide hospitality services to the customer at our other owned lodges through January 31, 2024, under a short-term take-or-pay commitment. Subsequent to this date, we have continued to provide such services at our other lodges; however, not pursuant to a take-or-pay commitment. During the third quarter of 2023, we entered into a definitive agreement to sell our McClelland Lake Lodge assets to a U.S.-based mining project for approximately C$49 million, or $36 million. Our McClelland Lake Lodge assets were dismantled and completely removed from the existing site in January 2024. During 2023, we recognized $14.2 million in dismantle costs and received $28.2 million in cash proceeds associated with the sale. During the first quarter of 2024, the transaction was completed, and we recognized the remaining $1.0 million in dismantle costs and received the remaining $7.8 million in cash proceeds.
United States Business. In the first quarter of 2023, we sold our accommodation assets in Louisiana, and in the second quarter of 2024, we sold the land at our Louisiana location. Our remaining U.S. business, which supported completion activity in the Bakken, was closed in the fourth quarter of 2024 due to low activity levels.
Foreign Currency Exchange Rates. Exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar influence our U.S. dollar reported financial results. Our business has historically derived the vast majority of its revenues and operating income (loss) in Canada and Australia. These revenues and profits/losses are translated into U.S. dollars for financial reporting purposes under U.S. generally accepted accounting principles. The following summarizes the fluctuations in the exchange rates between the U.S. dollar and each of the Canadian dollar and the Australian dollar:
Year Ended December 31,
2024 2023 Change Percentage
Average Canadian dollar to U.S. dollar $0.730 $0.741 (0.011) (1.5)%
Average Australian dollar to U.S. dollar $0.660 $0.665 (0.005) (0.7)%
As of December 31,
2024 2023 Change Percentage
Canadian dollar to U.S. dollar $0.695 $0.756 (0.061) (8.1)%
Australian dollar to U.S. dollar $0.620 $0.681 (0.061) (9.0)%
These fluctuations of the Canadian and Australian dollars have had and will continue to have an impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.
Capital Expenditures. We continue to monitor the global economy, commodity prices, demand for met coal, crude oil, LNG and iron ore, inflation and the resultant impact on the capital spending plans of our customers in order to plan our business activities. We currently expect that our 2025 capital expenditures will be in the range of approximately $25 million to $30 million, compared to 2024 capital expenditures of $26.1 million. We may adjust our capital expenditure plans in the future as we continue to monitor customer activity.
See “Liquidity and Capital Resources ” below for further discussion on 2025 and 2024 capital expenditures.
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Results of Operations
Unless otherwise indicated, discussion of results for the year ended December 31, 2024 is based on a comparison with the corresponding period of 2023.
Results of Operations – Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Year Ended
December 31,
2024 2023 Change
($ in thousands)
Revenues
Australia $ 426,956 $ 336,763 $ 90,193
Canada 245,087 352,795 (107,708)
Other 10,079 11,247 (1,168)
Total revenues 682,122 700,805 (18,683)
Costs and expenses
Cost of sales and services
Australia 315,374 243,011 72,363
Canada 207,135 277,067 (69,932)
Other 10,158 10,209 (51)
Total cost of sales and services 532,667 530,287 2,380
Selling, general and administrative expenses 73,350 72,605 745
Depreciation and amortization expense 68,038 75,142 (7,104)
Impairment expense 11,581 1,395 10,186
Gain on sale of McClelland Lake Lodge assets, net (5,744) (18,590) 12,846
Other operating expense 898 479 419
Total costs and expenses 680,790 661,318 19,472
Operating income 1,332 39,487 (38,155)
Interest expense, net (7,786) (13,005) 5,219
Other income 517 13,881 (13,364)
Income (loss) before income taxes (5,937) 40,363 (46,300)
Income tax expense (12,492) (10,633) (1,859)
Net income (loss) (18,429) 29,730 (48,159)
Less: Net expense attributable to noncontrolling interest (1,362) (427) (935)
Net income (loss) attributable to Civeo Corporation $ (17,067) $ 30,157 $ (47,224)
We reported net loss attributable to Civeo for 2024 of $17.1 million, or $1.19 per diluted share. As further discussed below, net loss included $5.7 million of net gains associated with the sale of McClelland Lake Lodge in Canada and a $11.6 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense.
We reported net income attributable to Civeo for 2023 of $30.2 million, or $2.01 per diluted share. As further discussed below, net income included $28.3 million of net gains associated with the sale of the McClelland Lake Lodge in Canada and a $1.4 million pre-tax loss resulting from the impairment of fixed assets included in Impairment expense.
Revenues. Consolidated revenues decreased $18.7 million, or 3%, in 2024 compared to 2023. This decrease was primarily due to reduced mobile asset activity from pipeline projects in Canada which were largely completed in 2023 and lower year-over-year occupancy at certain lodges in Canada. These items were partially offset by increased activity at our Civeo owned villages in the Australian Bowen Basin and new business in our integrated services villages in Western Australia. See below for further discussion of segment results of operations.
Cost of Sales and Services. Our consolidated cost of sales and services increased $2.4 million, or 0.4%, in 2024 compared to 2023. This increase was primarily due to increased occupancy at our Civeo owned villages in the Australian Bowen Basin and new business in our integrated services villages in Western Australia and the associated overhead costs. These items were partially offset by the decrease in cost of sales and services largely driven by reduced mobile asset activity from pipeline projects in Canada which were largely completed in 2023 and lower costs at certain lodges in Canada due to reduced occupancy. See below for further discussion of segment results of operations.
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Selling, General and Administrative Expenses. SG&A expense increased $0.7 million, or 1%, in 2024 compared to 2023. This increase was primarily due to higher compensation expense of $5.4 million, higher professional fees of $2.6 million and higher travel and entertainment costs of $0.9 million. The increase in compensation expense was primarily due to $1.1 million in severance costs related to the departure of our former Chief Financial Officer, other severance costs and increased staff and associated recruitment costs. These items were partially offset by lower incentive compensation costs of $5.6 million, lower share-based compensation expense of $2.8 million and a weaker Australian and Canadian dollar relative to the U.S. dollar in 2024 compared to 2023. The decrease in share-based compensation expense was primarily due to forfeitures, reduced performance share expense due to a lower probability of achieving performance criteria during 2024 compared to 2023 and changes in our share price during 2024 compared to 2023.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $7.1 million, or 9%, in 2024 compared to 2023. The decrease was primarily due to certain assets becoming fully depreciated in Canada, including the McClelland Lake Lodge, in 2023 and lower depreciation and amortization expense due to a weaker Australian and Canadian dollar relative to the U.S. dollar in 2024 compared to 2023. These items were partially offset by higher depreciation and amortization expense due to additional property, plant and equipment placed in service during 2024.
Impairment Expense. We recorded pre-tax impairment expense of $11.6 million in 2024 associated with long-lived assets in Australia, Canada and the U.S. We recorded pre-tax impairment expense of $1.4 million in 2023 associated with long-lived assets in Australia and the U.S.
See Note 4 - Impairment Charges to the notes to the consolidated financial statements included in Item 8 of this annual report for further discussion.
Gain on Sale of McClelland Lake Lodge Assets, net. We recorded $5.7 million and $18.6 million in net gains associated with the sale of the McClelland Lake Lodge in 2024 and 2023, respectively.
Operating Income. Operating income decreased $38.2 million, or 97%, in 2024 compared to 2023 primarily due to reduced mobile asset activity and lower lodge occupancy in Canada, higher impairment expenses and lower gain on sale of McClelland Lake Lodge assets in 2024 compared to 2023. These items were partially offset by higher activity levels in Australia and lower depreciation and amortization expense in 2024 compared to 2023.
Interest Expense, net. Net interest expense decreased $5.2 million, or 40%, in 2024 compared to 2023 primarily related to lower average debt levels during 2024 compared to 2023, which decreased approximately 35%.
Other Income. Consolidated other income decreased $13.4 million, or 96%, in 2024 compared to 2023. Other income in 2023 included $9.7 million in reimbursements associated with the dismantlement of the McClelland Lake Lodge. In addition, 2023 included gains related to the sale of our Acadian Acres accommodation assets in the U.S. and a gain on the settlement of asset retirement obligation in Canada. Other income in 2024 included $0.7 million in gains on sale of various assets in Canada and Australia.
Income Tax Expense. Our income tax expense for 2024 totaled $12.5 million, or (210.4)% of pretax loss, compared to an expense of $10.6 million, or 26.3% of pretax income for 2023. Our effective tax rate for 2024 was lower than the Canadian federal statutory rate of 15% primarily due to pre-tax losses in Canada with no corresponding tax benefit. Our effective tax rate for 2023 was higher than the Canadian federal statutory rate of 15%, primarily due to pre-tax income in Australia being taxed at the higher Australian income tax rate of 30%. Full valuation allowances are maintained against net deferred tax assets in both Canada and the U.S. In 2024, the tax benefit in Canada was offset by an increase to the valuation allowance of $8.5 million and a deferred tax benefit in Australia was offset by an increase to the valuation allowance of $0.6 million. In 2023, tax expense in Canada and the U.S. was offset by a valuation allowance release of $1.7 million and $0.8 million, respectively.
Other Comprehensive Income (Loss). Other comprehensive income decreased $28.6 million in 2024 compared to 2023 primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar decreased 8.1% in 2024 compared to a 2.4% increase in 2023. The Australian dollar exchange rate compared to the U.S. dollar decreased 9.0% in 2024 compared to a 0.2% increase in 2023.
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Segment Results of Operations – Australian Segment
Year Ended
December 31,
2024 2023 Change
Revenues ($ in thousands)
Accommodation and other services revenue (1)
$ 196,684 $ 177,834 $ 18,850
Food service and other services revenue (2)
230,272 158,929 71,343
Total revenues $ 426,956 $ 336,763 $ 90,193
Cost of sales ($ in thousands)
Accommodation and other services cost $ 94,344 $ 85,461 $ 8,883
Food service and other services cost 208,627 148,599 60,028
Indirect other cost 12,403 8,951 3,452
Total cost of sales and services $ 315,374 $ 243,011 $ 72,363
Gross margin as a % of revenues 26.1 % 27.8 % (1.8) %
Average daily rate for villages (3)
$ 78 $ 75 $ 3
Total billed rooms for villages (4)
2,524,108 2,371,763 152,345
Australian dollar to U.S. dollar $ 0.660 $ 0.665 $ (0.005)
(1) Includes revenues related to village rooms and hospitality services for owned rooms for the periods presented.
(2) Includes revenues related to food service and other services, including facilities management, for the periods presented.
(3) Average daily rate is based on billed rooms and accommodation and other services revenue.
(4) Billed rooms represents total billed days for owned assets for the periods presented.
Our Australian segment reported revenues in 2024 that were $90.2 million, or 27%, higher than in 2023. The increase in the Australian segment was driven by increased activity at our Civeo owned villages in the Bowen Basin and new business in our integrated services villages in Western Australia. Billed rooms in Civeo-owned villages were up 6.4% in 2024 due to increased activity in the Bowen Basin, Western Australia and Gunnedah Basin coupled with recent contract renewals and extensions.
Our Australian segment cost of sales and services increased $72.4 million, or 30%, in 2024 compared to 2023. The increase in cost of sales and services was largely driven by increased occupancy at our Civeo owned villages in the Bowen Basin and new business in our integrated services villages in Western Australia and the associated overhead costs.
Our Australian segment gross margin as a percentage of revenues decreased from 27.8% in 2023 to 26.1% in 2024. This decrease was primarily driven by an increased relative revenue contribution from our integrated services business, which has a service-only business model and therefore generates lower overall gross margins than our accommodation business. The reduced gross margin was partially offset by improved profitability across our integrated services villages in 2024.
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Segment Results of Operations – Canadian Segment
Year Ended
December 31,
2024 2023 Change
Revenues ($ in thousands)
Accommodation and other services revenue (1)
$ 214,774 $ 266,926 $ (52,152)
Mobile facility rental revenue (2)
1,523 61,899 (60,376)
Food service and other services revenue (3)
28,790 23,970 4,820
Total revenues $ 245,087 $ 352,795 $ (107,708)
Cost of sales and services ($ in thousands)
Accommodation and other services cost $ 164,089 $ 195,843 $ (31,754)
Mobile facility rental cost 4,940 49,073 (44,133)
Food service and other services cost 27,201 21,821 5,380
Indirect other cost 10,905 10,330 575
Total cost of sales and services $ 207,135 $ 277,067 $ (69,932)
Gross margin as a % of revenues 15.5 % 21.5 % (6.0) %
Average daily rate for lodges (4)
$ 97 $ 97 $ —
Total billed rooms for lodges (5)
2,205,700 2,710,784 (505,084)
Average Canadian dollar to U.S. dollar $ 0.730 $ 0.741 $ (0.011)
(1) Includes revenues related to lodge rooms and hospitality services for owned rooms for the periods presented.
(2) Includes revenues related to mobile assets for the periods presented.
(3) Includes revenues related to food service, laundry and water and wastewater treatment services for the periods presented.
(4) Average daily rate is based on billed rooms and accommodation and other services revenue.
(5) Billed rooms represents total billed days for owned assets for the periods presented.
Our Canadian segment reported revenues in 2024 that were $107.7 million, or 31%, lower than 2023. The weakening of the average exchange rate for the Canadian dollar relative to the U.S. dollar by 1.5% in 2024 compared to 2023 resulted in a $3.1 million period-over-period decrease in revenues. Excluding the impact of the weaker Canadian exchange rate, the revenue decrease was driven by (i) reduced mobile asset activity from pipeline projects which were largely completed in 2023, (ii) lower billed rooms at our oil sands lodges due to the timing and extent of maintenance activity by our customers, (iii) reduced occupancy associated with the sale of the McClelland Lake Lodge and (iv) reduced occupancy at our Sitka Lodge as the Kitimat LNG facility nears completion.
Our Canadian segment cost of sales and services decreased $69.9 million, or 25%, in 2024 compared to 2023. The weakening of the average exchange rate for the Canadian dollar relative to the U.S. dollar by 1.5% in 2024 compared to 2023 resulted in a $2.8 million period-over-period decrease in cost of sales and services. Excluding the impact of the weaker Canadian exchange rate, the decrease in cost of sales and services was driven by lower costs related to the reduced mobile asset activity from pipeline projects which were largely completed in 2023 and lower costs at various lodges due to reduced occupancy levels.
Our Canadian segment gross margin as a percentage of revenues decreased from 21.5% in 2023 to 15.5% in 2024. This decrease was primarily driven by reduced mobile asset activity from pipeline projects which were largely completed in 2023. In addition, margin at our lodges were lower due to reduced efficiencies at lower occupancy levels.
Liquidity and Capital Resources
Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and improving our hospitality services, developing new lodges and villages and purchasing or leasing land, to pay dividends, to repurchase common shares and for general working capital needs. In addition, capital has been used to repay debt and fund strategic business acquisitions. Historically, our primary sources of funds have been available cash, cash flow from operations, borrowings under our Credit Agreement and proceeds from equity issuances. In the future, capital may be required to move
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lodges from one site to another, and we may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity, fund acquisitions or refinance debt.
The following summarizes our material future cash requirements at December 31, 2024, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (in thousands):
Total Less Than 1
Year 1 – 3 Years 3 – 5 Years More
Than 5
Years
Debt maturities $ 43,299 $ — $ — $ 43,299 $ —
Interest payments (1)
9,529 2,637 5,274 1,618 —
Purchase obligations 8,169 8,169 — — —
Non-cancelable lease obligations 13,970 4,348 7,099 2,292 231
Asset retirement obligations – expected cash payments 61,255 747 2,052 3,118 55,338
Total contractual cash obligations $ 136,222 $ 15,901 $ 14,425 $ 50,327 $ 55,569
(1) Interest payments due under the Credit Agreement, which matures on August 8, 2028; based on an interest rate of 6.1% for Canadian revolver borrowings.
Our debt obligations at December 31, 2024 are reflected in our consolidated balance sheet, which is a part of our consolidated financial statements in Item 8 of this annual report. We have not entered into any material leases subsequent to December 31, 2024.
The following summarizes our consolidated liquidity position as of December 31, 2024 and 2023 (in thousands):
December 31,
2024 2023
Lender commitments $ 245,000 $ 200,000
Reductions in availability (1)
(3,635) —
Borrowings against revolving credit capacity (43,299) (65,554)
Outstanding letters of credit (1,100) (1,353)
Unused availability 196,966 133,093
Cash and cash equivalents 5,204 3,323
Total available liquidity $ 202,170 $ 136,416
(1) As of December 31, 2024, $3.6 million of our borrowing capacity under the Credit Agreement could not be utilized in order to maintain compliance with the maximum leverage ratio financial covenant in the Credit Agreement.
Cash totaling $83.5 million was provided by operations during 2024 compared to $96.6 million provided by operations during 2023. During 2024 and 2023, $31.8 million was provided by working capital and $1.6 million was used in working capital, respectively. The year-over-year increase in cash provided by working capital in 2024 compared to 2023 is largely due to the collection of holdbacks in Canada related to the completion of mobile asset pipeline projects during 2024 compared to 2023, partially offset by decreased accounts payable and accrual balances.
Cash used in investing activities during 2024 totaled $14.9 million compared to cash used in investing activities during 2023 of $14.5 million. The increase in cash used in investing activities was primarily due to lower proceeds from the sale of property, plant and equipment, partially offset by lower capital expenditures. We received net proceeds from the sale of property, plant and equipment of $11.0 million during 2024 related to the sale of our McClelland Lake Lodge accommodation assets in Canada and the sale of our Louisiana land in the U.S., compared to $16.7 million during 2023 primarily related to the sale of our McClelland Lake Lodge accommodation assets in Canada and Louisiana accommodation assets in the U.S. Capital expenditures totaled $26.1 million and $31.6 million during 2024 and 2023, respectively. Capital expenditures in both periods were primarily related to maintenance. In addition, our 2024 capital expenditures included approximately $2.9 million related to customer-funded infrastructure upgrades in Australia compared to $10.0 million in 2023.
We expect our capital expenditures for 2025 to be in the range of $25 million to $30 million, which excludes any unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts or commitments or attractive risk-adjusted economics. Whether planned expenditures will actually be spent in 2025 depends on industry conditions, project approvals and schedules, customer room commitments and project and construction timing. We expect to
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fund these capital expenditures with available cash, cash flow from operations and revolving credit borrowings under our Credit Agreement. The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could pursue should the transaction economics be attractive enough to us compared to the current capital allocation priorities of returning capital to shareholders. We continue to monitor the global economy, commodity prices, demand for met coal, crude oil, LNG and iron ore, inflation and the resultant impact on the capital spending plans of our customers in order to plan our business activities, and we may adjust our capital expenditure plans in the future.
The table below delineates historical capital expenditures split between expansionary and maintenance spending on our lodges and villages, mobile asset spending and other capital expenditures. We classify capital expenditures for the development of rooms and central facilities at our lodges and villages as expansion capital expenditures. Other capital expenditures below relate to routine capital spending for support equipment, upgrades to infrastructure at our lodge and village properties and spending related to our manufacturing facilities, among other items.
Based on management’s judgment of capital spending classifications, we believe the following represents the components of capital expenditures for the years ended December 31, 2024 and 2023 (in millions):
Year Ended December 31,
2024 2023
Expansion Maint Total Expansion Maint Total
Lodge/village $ 7.3 $ 13.2 $ 20.5 $ 12.8 $ 11.6 $ 24.4
Mobile assets — — — 1.3 — 1.3
Other 3.2 2.4 5.6 2.4 3.5 5.9
Total $ 10.5 $ 15.6 $ 26.1 $ 16.5 $ 15.1 $ 31.6
Expansion lodge and village spending in 2024 was related to costs associated with the customer-supported reactivation of our Buffalo Lodge in Canada and customer-funded infrastructure upgrades at three Australian villages. Expansion lodge and village spending in 2023 was largely related to customer-funded infrastructure upgrades at three Australian villages.
Maintenance lodge and village spending in 2024 and 2023 was primarily associated with routine maintenance projects at our major properties.
Mobile asset spending in 2023 was primarily related to an asset storage yard purchased in Canada.
Other maintenance and expansion spending in 2024 was primarily related to miscellaneous equipment and supplies to support the day-to-day operations at our accommodation and laundry facilities, purchases to support new contacts at our integrated services business in Australia and information technology infrastructure to support our business. Other maintenance and expansion spending in 2023 was primarily related to miscellaneous equipment and supplies to support the day-to-day operations at our accommodation and laundry facilities and information technology infrastructure to support our business.
Cash used in financing activities during 2024 of $65.2 million was primarily due to (i) repurchases of our common shares of $29.6 million, (ii) dividend payments of $14.4 million, (iii) net repayments under our revolving credit facilities of $17.1 million, (iv) debt issuance costs of $3.0 million and (v) payments to settle tax obligations of $1.1 million. Cash used in financing activities during 2023 of $86.8 million was primarily due to (i) net repayments under our revolving credit facilities of $37.8 million, (ii) repayments of term loan borrowings of $29.9 million, (iii) repurchases of our common shares of $11.6 million and (iv) dividend payments of $7.4 million.
The following summarizes the changes in debt outstanding during 2024 (in thousands):
Total
Balance as of December 31, 2023 $ 65,554
Borrowings under revolving credit facilities 284,314
Repayments of borrowings under revolving credit facilities (301,431)
Translation (5,138)
Balance at December 31, 2024 $ 43,299
We believe that cash on hand and cash flow from operations will be sufficient to meet our anticipated liquidity needs for the next 12 months. If our plans or assumptions change, including as a result of changes in our customers' capital spending or changes in the price of and demand for natural resources, or are inaccurate, or if we make acquisitions, we may need to raise
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additional capital. Acquisitions have been, and our management believes acquisitions will continue to be, an element of our long-term business strategy. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances or may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.
In September 2024, our Board authorized a common share repurchase program to repurchase up to 5.0% of our total common shares which are issued and outstanding, or 710,556 common shares, over a twelve-month period. In addition, our Board declared quarterly dividends of $0.25 per common share to shareholders beginning in the third quarter of 2023. Dividend payments of $14.3 million and $7.4 million were made to shareholders in 2024 and 2023, respectively. These dividends are eligible dividends pursuant to the Income Tax Act (Canada). See Note 16 – Share Repurchase Programs and Dividends to the notes to the consolidated financial statements included in Item 8 of this annual report for further discussion.
Credit Agreement
As of December 31, 2024, the Credit Agreement provided for: (i) a $245.0 million revolving credit facility scheduled to mature on August 8, 2028, allocated as follows: (A) a $10.0 million senior secured revolving credit facility in favor of certain of our U.S. subsidiaries, as borrowers; (B) a $200.0 million senior secured revolving credit facility in favor of Civeo and certain of our U.S. subsidiaries, as borrowers; and (C) a $35.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower.
As of December 31, 2024, we had outstanding letters of credit of $0.3 million under the U.S. facility, zero under the Australian facility and $0.8 million under the Canadian facility. We also had outstanding bank guarantees of A$2.1 million under the Australian facility.
See Note 11 - Debt to the notes to the consolidated financial statements in Item 8 of this annual report for the terms of the Credit Agreement and further discussion regarding our debt.
Dividends
We intend to pay regular quarterly dividends on our common shares, with all future dividend payments subject to quarterly review and approval by our Board. The declaration and amount of all potential future dividends will be at the discretion of our Board and will depend upon many factors, including our financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the Board deems relevant. In addition, our ability to pay cash dividends on common shares is limited by covenants in the Credit Agreement. Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes if we are required to repatriate foreign earnings to pay such dividends. The amount per share of our dividend payments may be changed, or dividends may be suspended, without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness. There can be no assurance that we will continue to pay a dividend in the future.
Critical Accounting Policies and Estimates
Our consolidated financial statements in Item 8 of this annual report have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), which require that management make numerous estimates and assumptions. Actual results could differ from those estimates and assumptions, thus impacting our reported results of operations and financial position. The critical accounting policies and estimates described in this section are those that are most important to the depiction of our financial condition and results of operations and the application of which requires management’s most subjective judgments in making estimates about the effect of matters that are inherently uncertain. We describe our significant accounting policies more fully in Note 2 - Summary of Significant Accounting Policies to the notes to consolidated financial statements in Item 8 of this annual report.
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Impairment of Definite-Lived Tangible and Intangible Assets
The recoverability of the carrying values of tangible and intangible assets is assessed at an asset group level which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Whenever, in management’s judgment, we review our assets for impairment in step one when events or changes in circumstances indicate that the carrying value of such asset groups may not be recoverable based on estimated future cash flows, an asset impairment evaluation is performed. Indicators of impairment might include persistent and sustained negative economic trends affecting the markets we serve, recurring cash flow losses or significantly lowered expectations of future cash flows expected to be generated by our assets. As part of the initial step, we also reevaluate the remaining useful lives and salvage values of our assets when indicators of impairment exist.
Identification of Asset Groups – The following summarizes the asset groups that we have identified in each of our reporting segments.
Our Canada segment consists of numerous lodges, as well as our mobile assets. These properties are grouped in the following asset groups:
• Core Region
◦ Fort McMurray Village – North Athabasca
◦ Beaver River Lodge – North Athabasca
◦ Athabasca Lodge – North Athabasca
◦ Hudson and Borealis Lodges – North Athabasca
• Wapasu Creek Lodge – North Athabasca
• Grey Wolf Lodge - North Athabasca
• Conklin Lodge – South Athabasca
• Anzac Lodge – South Athabasca
• Red Earth Lodge - South Athabasca
• Wabasca Lodge - South Athabasca
• Sitka Lodge – Kitimat, British Columbia
• Geetla camp – British Columbia
• Antler River camp – Manitoba
• Red Earth camp – Alberta
• Christina Lake camp – Alberta
• Mobile assets
• Various land holdings in British Columbia purchased in anticipation of potential LNG related projects
In general, the lodges are operated on a lodge by lodge basis. However, for one set of lodges (the Core Region, including Beaver River, Athabasca, Hudson and Borealis Lodges and Fort McMurray Village), there are no identifiable cash flows largely independent of the cash flows of other assets and liabilities for such lodges, and therefore, such lodges are combined into a single asset group. Factors such as proximity to each other, commonality of customers, common monitoring by management and operating decisions being made to optimize these lodges as a group result in these lodges being treated as a single asset group for the purposes of our impairment assessments.
Our Australia segment consists of eight villages in several regions within the country, as well as our integrated services assets and land banked assets. These properties are grouped in the following asset groups:
• Karratha – Pilbara Region, Western Australia
• Integrated services – Assets held on client owned sites in Western Australia and South Australia
• Gunnedah Basin
◦ Narrabri – Gunnedah Basin, New South Wales
◦ Boggabri – Gunnedah Basin, New South Wales
• Bowen Basin
◦ Moranbah – Bowen Basin, Queensland
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◦ Dysart – Bowen Basin, Queensland
◦ Nebo – Bowen Basin, Queensland
◦ Coppabella – Bowen Basin, Queensland
◦ Middlemount – Bowen Basin, Queensland
• Various non-operational sites acquired as part of Civeo’s land-banking strategy
In general, the villages are operated on a village by village basis, except for the villages located in the Bowen Basin (Moranbah, Dysart, Nebo, Coppabella and Middlemount) and the Gunnedah Basin (Narrabri and Boggabri). The villages in the Bowen and Gunnedah Basins contain significant levels of interdependency that allow these assets to be combined into cash generating units (asset groups). Factors such as commonality of customers, location, resource basins served and common monitoring by management result in the Bowen and Gunnedah Basins to be treated as single asset groups for the purposes of our impairment assessments. Integrated services assets provide catering and managed services to the mining industry in Western Australia and South Australia.
U.S. consists of a lodge, land and a wastewater treatment plant (WWTP). These properties are grouped in the following asset groups:
• Killdeer Lodge – North Dakota
• Killdeer WWTP – this asset group represents a WWTP in Killdeer, North Dakota, which was constructed in early 2014
Recoverability Assessment – In performing an impairment analysis, the second step is to compare each asset group’s carrying value to estimates of undiscounted future direct cash flows associated with the asset group over the remaining useful life of the asset group's primary asset. We use a variety of underlying assumptions to estimate these future cash flows, including assumptions relating to future economic market conditions, rates, occupancy levels, costs and expenses and capital expenditures. The estimates are consistent with those used for purposes of our goodwill impairment test.
Fair Value Determination – If, based on the assessment, the carrying values of any of our asset groups are determined to not be recoverable as a result of the undiscounted future cash flows not exceeding the net book value of the asset group, we proceed to the third step. In this step, we compare the fair value of the respective asset group to its carrying value. Our estimate of the fair value requires us to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future circumstances, such as industry and/or local market conditions that might directly impact each of the asset groups’ operations in the future, and are therefore uncertain. In some cases our estimate of fair value is based on appraisals from third parties.
Our industry is cyclical and our estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows and our determination of whether a decline in value of our investment has occurred, can have a significant impact on the carrying value of these assets and, in periods of prolonged down cycles, may result in impairment losses. If this assessment indicates that the carrying values will not be recoverable, an impairment loss is recognized equal to the excess of the carrying value over the fair value of the asset group. The fair value of the asset group is based on prices of similar assets, if available, or discounted cash flows.
In estimating future cash flows, we make numerous assumptions with respect to future circumstances that might directly impact each of the asset groups’ operations in the future and are therefore uncertain. These assumptions with respect to future circumstances include future oil and coal prices, anticipated customer spending, and industry and/or local market conditions. These assumptions represent our best judgment based on the current facts and circumstances. However, different assumptions could result in a determination that the carrying values of additional asset groups are no longer recoverable based on estimated future cash flows. Our estimate of fair value is primarily calculated using the Income Approach, which derives a present value of the asset group based on the asset groups’ estimated future cash flows. We discounted our estimated future cash flows using a long-term weighted average cost of capital based on our estimate of investment returns required by a market participant.
See Note 4 – Impairment Charges to the notes to consolidated financial statements in Item 8 of this annual report for further discussion of impairments of definite-lived tangible and intangible assets recorded in the years ended December 31, 2024, 2023 and 2022.
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Revenue and Cost Recognition
We generally recognize accommodation, mobile facility rental, food service and other services revenues over time as our customers simultaneously receive and consume benefits as we serve our customers because of continuous transfer of control to the customer. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We transfer control and recognize a sale based on a periodic (usually daily) room rate each night a customer stays in our rooms or when the services are rendered. In some contracts, rates may vary over the contract term. In these cases, revenue may be deferred and recognized on a straight-line basis over the contract term.
Because of control transferring over time, the majority of our revenue is recognized based on the extent of progress towards completion of the performance obligation. At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise to transfer our customers a good or service (or bundle of goods or services) that is distinct. Our customers typically contract for hospitality services under take-or-pay contracts with terms that range from several months to multiple years. Our contract terms generally provide for a rental rate for a reserved room and an occupied room rate that compensates us for services provided. We typically contract our facilities to our customers on a fee per day basis where the goods and services promised include lodging and meals. To identify the performance obligations, we consider all of the goods and services promised in the context of the contract and the pattern of transfer to our customers.
Revenues exclude taxes assessed based on revenues such as sales or value added taxes.
Cost of services includes labor, food, utility costs, cleaning supplies, and other costs of operating our accommodations facilities. Cost of goods sold includes all direct material and labor costs and those costs related to contract performance, such as indirect labor, supplies, tools and repairs. Selling, general and administrative costs are charged to expense as incurred.
Income Taxes
We follow the liability method of accounting for income taxes in accordance with current accounting standards regarding the accounting for income taxes. Under this method, deferred income taxes are recorded based upon the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect at the time the underlying assets or liabilities are recovered or settled.
When our earnings from foreign subsidiaries are considered to be indefinitely reinvested, no provision for Canadian income taxes is made for these earnings. If any of the subsidiaries have a distribution of earnings in the form of dividends or otherwise, we could be subject to both Canadian income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.
We record a valuation allowance in each reporting period when our management believes that it is more likely than not that any recorded deferred tax asset will not be realized. Our management will continue to evaluate the appropriateness of the valuation allowance in the future, based upon our current and historical operating results and other potential sources of future taxable income. See Note 14 – Income Taxes to the notes to consolidated financial statements in Item 8 of this annual report for further discussion.
In accounting for income taxes, we are required to estimate a liability for future income taxes for any uncertainty for potential income tax exposures. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in Canada and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due, including an accrual of interest and penalties, if applicable, related to the unrecognized tax benefits. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies – Recent Accounting Pronouncements to the notes to consolidated financial statements in Item 8 of this annual report for further discussion.
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